HKCEE-PRINCIPLES OF ACCOUNTS-1996 ALL RIGHTS RESERVED

SECTION A
Answer any FOUR questions from this section. Each question carries 10 marks.

1. Define the following accounting concepts and give an example for each to illustrate its
application:
a. Going concern. (5 marks)
b. Quantifiability. (5 marks)

2. Barker Limited, a manufacturing company, purchased a moulding machine from Sakura

Company of Japan, the invoice price being $52500. The machine was received on 16
December 1992 after the purchase price plus import duty of $5000 and landing charges of
$2000 had been paid. Installation was completed by 1 January 1993 at a further cost of
$2800.
The company estimated that the machine would have a useful life of 10 years and a scrap value
of $14300. The financial period ends on 30 September each year and depreciation is to be
charged on a straight-line basis. The performance of the machine was not satisfactory and it
was sold on 30 April 1996 for $41625.
Required:
Prepare the following accounts to record the above:
a. moulding machine. (2 marks)
b. provision for depreciation – moulding machine. (5 marks)
c. disposal of moulding machine. (3 marks)

3. The cash book of Raymond Limited showed a favourable bank balance of $3856 at 30 April
1996. An examination of the bank column in the cash book and the bank statement disclosed
the following:
i. A customer who received a cash discount of 2.5% on his account of $400, paid the
company a cheque on 20 April. The cashier entered the gross amount in the cash book.
ii. An amount of $1500 entered on the debit side of the cash book had not been banked
until 1 May.
iii. Cheques issued amounting to $948 had not been presented to the bank for payment.
iv. A cheque from Alex Limited for the amount of $1480 had been returned by the bank on
29 April marked ‘insufficient funds – refer to drawer’. The returned cheque was not
received by Raymond Limited until 1 May.
v. A standing order for a charitable subscription of $450 had been paid by the bank on 29
April but no entry had been made in the cash book.
vi. The manager had given the cashier a personal cheque for $800 to pay into his personal
account at the bank on 25 April. The cashier had paid it into the company’s account by
mistake, although no entries had been made in the company’s books.
vii. Interest of $160 had been charged by the bank, but not yet entered in the cash book.
Required:
HKCEE-PRINCIPLES OF ACCOUNTS-1996 ALL RIGHTS RESERVED
a. Show the necessary adjustments in the cash book. (5 marks)
b. Prepare a bank reconciliation statement as at 30 April 1996. (5 marks)

4. The stock of Cindy Limited was taken on 31 March 1996 and the final figure was to be
incorporated in the financial reports for the three months ending 31 March 1996. However, the
stock sheets were lost and further investigation revealed the following information:
i. Stock at 31 December 1995 was $54378, at cost.
ii. Goods invoiced to customers in respect of January, February and March 1996 amounted
to $65020.
iii. Selling prices are determined by a 25% mark-up on cost.
iv. Certain items in stock at 31 December 1995 valued at $648 were scrapped in February
1996.
v. A scrutiny of the stock sheets as at 31 December 1995 revealed that one sheet had
been over-added by $210.
vi. Purchases of $61632 during the three months ended 31 March 1996 had been duly
entered in the accounting records.
vii. Goods received in March 1996 amounting to $2050 had not yet been invoiced by the
supplier.
viii. Goods returned to suppliers during the quarter amounted to $374 and goods returned by
customers in this period amounted to $890, at cost.
Required:
Compute the amount of stock for inclusion in the financial reports for the quarter ending 31
March 1996. (10 marks)

5. Chan consigned 40 boxes of toys, costing $300 per box, to his selling agent Wong on 1 January
1996.
Transport charges and sundry expenses paid by Chan amounted to $520 and $120 respectively.
On arrival at Wong’s premises, the contents of 5 boxes were found to be damaged and
unsaleable. They had not been insured.
By the end of March 1996, Wong had sold 30 boxes of toys for $500 per box. He had paid
storage expenses of $210, delivery charges of $90 and selling expenses of $580. He sent a
cheque for the amount due to Chan after deducting a sales commission of 10%.
Required:
Record in Chan’s books the above transactions for the three months ended 31 March 1996 in
the following accounts:
a. consignment to Wong (showing the profit or loss on consignment). (7 marks)
b. Wong. (3 marks)

6. Variety Limited started to sell electrical goods on hire purchase terms in 1995.
The following hire purchase transactions occurred during the year ended
31 December 1995:
HKCEE-PRINCIPLES OF ACCOUNTS-1996 ALL RIGHTS RESERVED
Item Date of Cost Hire Purchase Deposit Monthly
Sales $ Price $ Instalment
$ $
Radio 5 Jun 800 1200 360 84
Washing machine 1 Aug 3900 5200 1200 400
Refrigerator 23 Oct 6600 8800 1600 600

Deposits were received on dates of sales and instalments were due at the end of each month,
the first being payable at the end of the month following the month of sale. At 31 December
1995, two instalments on radio and one instalment on washing machine were in arrears. The
firm recognises profit on hire purchase sales in proportion to cash actually received during the
year.
Required:
Prepare the hire purchase trading account for the year ended 31 December 1995 for Variety
Limited, showing clearly the calculation of the unrealised profit for each item sold. (10 marks)

SECTION B
Answer any THREE questions from this section. Each question carries 20 marks.

7. Success Limited is a retailer of kitchenware. Most goods it trades are purchased from various
suppliers in a finished form. In addition, the company manufactures several types of kettles.
The bookkeeper drew up the following trial balance at 30 April 1996:
$ $
Ordinary share capital of $1 each 200000
General reserve 23000
Retained profits 164600
15% long-term loan 120000
Machinery - at cost 400000
- accumulated depreciation as at 1 May 1995 100000
Motor vehicles- at cost 160000
Stocks as at 1 May 1995
Raw materials 20000
Manufactured goods 10000
Other goods 170000
Debtors 160000
Creditors 48000
Bank 50000
Sales 2200000
Purchases – Raw materials 430000
- Other goods 1150000
Salaries 257000
Rent and rates 22000
Electricity 10500
Interest on loan 9000
Sundry expenses 7100
2855600 2855600

The following information is also given:

i. Depreciation is to be provided using the reducing-balance method at the following rates:
Motor vehicles - 12.5% per annum
Machinery - 10% per annum
HKCEE-PRINCIPLES OF ACCOUNTS-1996 ALL RIGHTS RESERVED

The motor vehicle was purchased in 1996. It is the company’s policy to charge a full
year’s depreciation in the year of acquisition.
ii. Salaries include wages of $54000 paid to the kettle-making employees.
iii. Rates prepaid at 30 April 1996 amounted to $2000.
iv. Accruals at 30 April 1996 were:
$
Electricity 1500
Interest on loan 9000

v. The apportionment of rent and rates and electricity to the kettle-making department is
25%.
vi. Stocks at 30 April 1996 were:
$
Raw materials 40000
Manufactured goods 12500
Other goods 215000

vii. The directors proposed to transfer $40000 of the profits to general reserve and to
declare a final dividend of $0.50 per share.
Required to prepare:
a. a manufacturing, trading and profit and loss account (with the section on appropriations)
for the year ended 30 April 1996. (13 marks)
b. a balance sheet as at the same date. (7 marks)

8. The treasurer of the Fit Dancing Club has prepared the following receipts and payments account
for the year ended 31 December 1995:
Receipts and Payments Account
$ $
Balance b/d 26400 Purchases – dancing shoes and
Subscriptions 61500 costumes 132000
Annual dinner – ticket sales 15100 Purchases of amplifier 16500
Sale of old amplifier 8000 Musicians’ fees 13500
Dancing festival – admission 14100 Coaching fees 12300
Sales – dancing shoes and 156000 Hall – Rent (for 12 months to 30
costumes June 1996) 24000
- Rates (for 6 months to 31
Dec.1995) 4700
- Decoration 1650
Annual dinner – hotel and catering 16150
Dancing festival
- prizes 2550
- adjudicator’s fee 1350
Balance c/d 56400
281100 281100

Additional information:
i. Subscriptions $ $
Received in 1994 for: 1995 2850
Received in 1995 for: 1994 2250
1995 57300
1996 1950 61500
HKCEE-PRINCIPLES OF ACCOUNTS-1996 ALL RIGHTS RESERVED

ii. An amount of $3000 was still owing to a stationery supplier as at 31 December 1995.
iii. The amplifier which was sold on 1 January 1995 had a net book value of $9600 on 31
December 1994. A new amplifier was bought on 1 July 1995 to replace the old one.
iv. Depreciation on the new amplifier is to be provided at the rate of 20% per annum on
cost.
v. The Club’s other assets and liabilities at 31 December 1994 and 1995 were as follows:
1994 1995
$ $
Stock of dancing shoes and costumes 24150 25500
Sundry creditors
Annual dinner (catering) 1050
Purchases – dancing shoes and costumes 13500 12500

Required to prepare:
a. a trading account for the year ended 31 December 1995, showing the profit/loss on the sale
of dancing shoes and costumes. (3 marks)
b. an income and expenditure account for the year ended 31 December 1995. (10 marks)
c. a balance sheet as at the same date. (7 marks)

9. Lau and Chun were in partnership sharing profits and losses in the ratio 1:2 respectively. The
balance sheet as at 31 December 1995 was as follows:
Balance sheet as at 31 December 1995
$ $ $ $
Fixed Assets Capital Accounts
Buildings, net book 306000 Lau 162000
value 59400 Chun 288000
Equipment, net book 365400 450000
value Current Accounts
16200 Lau 2520
Current Assets 36360 Chun 1800 4320
Stock 51120 103680 454320
Debtors Current Liabilities
Bank Creditors 14760
469080 469080

Lau retired on 30 April 1996 on the following terms:

i. He was to be paid the amount of his capital and current account balances at 31
December 1995, together with his share of profit and loss for the 4 months ending 30
April 1996 and his share of goodwill.
ii. Goodwill was calculated to have a value of $135000. No goodwill account was to
remain in the partnership books.
iii. No assets or liabilities were to be revalued on retirement.
iv. It was agreed that Lau should be repaid in four equal instalments, the first payment
being made on 1 May 1996. The balance was to be left temporarily in the partnership
as a loan.
After all the nominal accounts had been balanced off, the following position was arrived at on
30 April 1996:
Assets $
HKCEE-PRINCIPLES OF ACCOUNTS-1996 ALL RIGHTS RESERVED
Buildings, net book value 299880
Equipment, net book value (including additions of $7200) 62640
Bank 60660
Stock 21600
Debtors 44460
489240
Liabilities
Creditors 17640

There were no entries to the capital accounts during the four months. However, the following
drawings had been made:
$
Lau 36000
Chun 61200

Kwok was admitted as a new partner on 1 May 1996. He brought in $92000 as his capital,
and additional cash for his share of goodwill. The new profit-sharing ratios was: Chun, four-
fifths; and Kwok, one-fifth.
Required:
a. Calculate the profit of the partnership for the period from 1 January 1996 to 30 April 1996.
(3 marks)
b. Prepare the partners’ capital and current accounts to reflect the above arrangements.
(11 marks)
c. Draw up the balance sheet of the new partnership as at 1 May 1996. (6 marks)

10. The draft accounts of Mabel Company Limited for the year ended 30 April 1996 failed to
balance and there was a net debit difference of $2335 in the suspense account. The net profit
for the year before adjustments amounted to $129380.
During subsequent audit, the following details were discovered:
i. The debit balance of $1500 on Sharp Limited’s account had been brought forward as
$150.
ii.A new piece of furniture costing $3100 had been debited to the purchases account.
iii. Depreciation of office equipment had been entered in the profit and loss account as
$1683 instead of $1368.
iv. A bad debt of $1300 had been written off from the account of Modern Limited, but the
double entry had not been completed.
v. In April 1996, Mabel Company Limited had bought goods on credit from Elegant Limited
for $4521 and had sold goods on credit to the same company for $1630. These
transactions had been correctly recorded in the accounts. The two accounts of Elegant
Limited were to be settled in contra at 30 April 1996.
vi. No entries had been made in the books in respect of a credit purchase form Allen Limited
on 29 April 1996. the invoice price was $650 and a trade discount of $40 had been
given by the supplier.
vii. In March 1996, Mabel Company Limited had issued 100000 $1 ordinary shares at a
premium of $0.50 per share. The issue price was received by two equal instalments in
HKCEE-PRINCIPLES OF ACCOUNTS-1996 ALL RIGHTS RESERVED

March and April 1996 respectively. The premium in respect of this issue was to be
included in the second instalment. Both proceeds had correctly been debited to the
bank account, but the sales account and the general reserve account had been credited
with the March and April receipts respectively.
viii. Some goods, costing $840, had been damaged by fire. They had no scrap value and
were written off. A claim of $800 had been agreed with the insurance company.
ix. Mr Lee, whose debts had been written off, paid $731 to clear his account in April 1996.
No entry has yet been made.
x. The returns inwards account had been credited with $90 for some goods returned to a
supplier.
Required:
a. Show the journal entries necessary to record the above (no narration is required).
(13 marks)
b. Draw up the suspense account. (3 marks)
c. Calculate the revised net profit for the year ended 30 April 1996. (4 marks)

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